Bob Kerrey: Easy for Me to Say, but…Raising Prices Should Be a Last Resort

What advice would you give companies whose costs are rising, but are afraid of raising prices?

The challenge of giving advice to a CEO who is experiencing rising costs and is afraid to raise prices is that a single variable can change the nature of the advice. And giving advice to a man or woman who is making this decision is like giving advice to a football coach during a game in which a three-touchdown, first-half lead has been cut to three points. Easy for me to say what you should do sitting in the stands drinking a beer and shouting myself hoarse.

Fear about raising prices is the right response. Raising prices should always be a last resort and not a knee-jerk reaction to rising costs. After you have achieved improved efficiency, the decision to raise prices will no doubt depend on whether your capital has come from private or public sources. If it is the latter, your investors are likely to become former investors if you have insufficient pricing power to pass on costs to your customers AFTER you have gained more efficiency. If it is the former, I hope you love what you do enough that substandard returns are acceptable.

This brief answer provokes me to make a political-economic argument especially to my fellow Democrats: The economic wealth of our nation (upon which everything we do depends) is created by men and women who have the skill and demonstrate the courage needed to manage their businesses so their costs are sufficiently below their revenue that their businesses have value. When they succeed, they add to the wealth of the nation. When they fail, they do not. It is that terrifyingly simple.

Bob Kerrey is a former U.S. senator, governor of Nebraska and president of The New School. He is currently the executive chairman of the Minerva Institute.